The Economic Crisis Of Urban America

Can it be that nothing has changed? Nearly 30 years after Lyndon Johnson unveiled his vision for a Great Society and 10 years after Ronald Reagan launched his laissez-faire revolution, poverty and income inequality persist. Then, as now, the breeding ground of economic misery is the American city, where a crisis has been festering for years.

It took a brutal beating, an unexpected jury verdict, and the sudden rampage of rioting, looting, and indiscriminate violence to bring this crisis back to the forefront. Racism surely explains some of the carnage in Los Angeles. But the day-to-day living conditions with which many of America's urban poor must contend tell an equally compelling story--a tale of economic injustice.

LIFE SENTENCES. The poverty rate, which fell as low as 11% in the 1970s, moved higher in the Reagan years and jumped during the past couple of years. Last year, an estimated 36 million people--or about 14.7% of the total population--were living in poverty.

More of them live in cities than ever before. About 42% of the impoverished live in center cities, compared with 30% in 1968. And while the total number of urban poor is split fairly evenly between blacks and whites, black poverty is much more concentrated--more than 60% of poor blacks now live in center cities. Hispanics, whom the Census Bureau counts sometimes as black, sometimes as white, have a similar concentration of their poor in the center cities, about 59%. Only 34% of poor whites reside in the cities. No matter their race or ethnic background, though, the poor suffer from inadequate health care, failing schools, and the terror of drug-related violence.

The economic crisis of urban America is, of course, troubling on moral grounds. If persistent poverty and the array of consequences that often follow in its wake--from teenage pregnancy to welfare dependency to crack addiction--is not addressed, then an entire group of people will be condemned to a permanent state of underprivilege and despair.

But it isn't only the economic well-being of the poor that will suffer from neglect. The direct and indirect costs to society of tolerating an underclass of urban poor is at least $230 billion annually and mounting (table, page 40). Harder to quantify, but far more important, are the long-term consequences of depriving both the underprivileged and society of their economic potential--the chance to become better educated, better skilled, and more self-reliant.

How did urban poverty get so intractable? One critical factor, observers of all political stripes now agree, is the weakening family structure in many inner-city communities, especially among blacks. A stunning 62% of poor blacks live in female-headed households, compared with 28% of poor whites. A large number of these mothers, highly dependent on welfare and with almost no job prospects, live isolated from mainstream society. It will be extremely difficult for their children "to have any shot at a middle-class life," says Isabel V. Sawhill, senior fellow at the Urban Institute.

Government policies, too, have played a role. Federal aid to cities as a percentage of city budgets is nearly 64% below its 1980 level. The paralyzing politics of a $350 billion budget deficit don't augur well for increased spending--even though public investment may be just what's needed now. President Bush is groping for a response to the riots, while his contenders for power are making more political hay than policy.

Then, too, troubled race relations continue to poison the debate and may stand in the way of dispassionate problem-solving. A growing number of white Americans believe affirmative action programs have gone far enough. Meanwhile, many blacks don't believe white society cares enough to adopt forceful solutions. In a country where blacks account for 45% of the inmates in federal and state prisons, and 50% of black children under the age of six live in poverty, racism is ingrained. "White people who have vested interests in seeing that no changes are made will see to that," says Gregory Davis, an insurance underwriter at Cigna Corp., who also runs a program that puts middle-class blacks into inner-city Philadelphia schools to act as mentors.

There are, however, powerful economic forces of the 1980s that transcend these familiar explanations of urban poverty and deterioration. First is the brutal impact of global competition, which wiped out manufacturing jobs, many of them held by workers living in cities. At the same time, the lure of the suburbs pulled millions of Americans out of urban America, shrinking tax bases.

PRESSURES. Intense global competition and technological change have dealt the poor the biggest income hit. As the U.S. economy faces the challenges of competition, there has been a sharp increase in wages for those with education and skills, an increasingly rare product of inner-city schools. At the same time, wages and jobs for the less skilled have dropped sharply. And the competitive pressure on U.S. companies to lower costs will only intensify as the free-trade zone linking Canada, the U.S., and Mexico expands in the 1990s.

Responding to such pressures, certain industries as early as the 1970s began to cut low-skilled employment, and the trend gathered force in the 1980s. The cumulative cutbacks have been deep. Almost 3 million manufacturing jobs have been lost since 1979, the last peak year of manufacturing employment. Certain light manufacturing industries that employed many city residents, such as apparel, have shrunk employment by more than 25%. For urban workers who counted on steady factory jobs that require little education, the losses have been devastating.

Low-skilled white men in their 20s saw their annual income fall by 14%, after adjusting for inflation, from 1973 to 1989. The annual earnings of white male dropouts in their 20s fell by 33%. But black men in their 20s, at the core of the inner-city employment problem, suffered the most. Their earnings over the same time period fell by 24% and by a stunning 50% for high school dropouts. And in New York City, for instance, only 8.6% of black youths aged 16 to 19 are employed today, according to unpublished Labor Dept. estimates. "Inner-city blacks have the lowest skills. And when the bottom starts falling, they fall first and hardest," says Richard B. Freeman, economist at Harvard University.

To lower costs and become more competitive, some maufacturers sought cheaper land and labor in the suburbs or the greener fields of the South and West. And some companies have closed up shop altogether. The Cleveland area, for example, has lost 37% of its factory employment since 1979, according to George C. Zeller, senior researcher for the Council for Economic Opportunities in Greater Cleveland. There are no indications that this trend will let up. Next month. for example, Lotus Development Corp. will move 350 manufacturing employees out of facilities in urban Cambrdige, Mass., to a new suburban plant on Route 128 that will be cheaper to operate.

Many cities, in a remarkable feat of resurgence, in the 1980s transformed themselves from manufacturing powerhouses to office centers. But the legal, financial, accounting, and other service jobs created in those high-rise offices had to be filled by workers with high skill levels and eductional achievement. So competition intensified for the "increasingly scarce jobs for people without a high school education," says Paul E. Peterson, professor of government at Harvard.

Even getting a good high school education in the inner cities has become more difficult. Many schools can't teach children the basics that potential employers require, and some public schools are more noted for their hallway gunfights and drug sales than for their graduation rate. Four out of every 10 students drop out of Boston's schools, and of the six who do manage to graduate, three will be functionally illiterate, according to James M. Howell, president of the Howell Group Inc., a Boston-based economic consulting group.

Federal housing policy and the state of housing in the inner cities have also ensured that living conditions remain poor. Some neighborhoods burned out in the riots of the 1960s have never been rebuilt, and today many of the urban poor are living in racially segregated neighborhoods, confined to dilapidated housing or fearsome high-rise projects.

Even those with the income to buy a home are often denied loans. Many banks won't lend to blacks and Hispanic living in certain meighborhoods. A recent Federal Reserve Board study indicates that blacks and Hispanic applicants were denied home loans more than twice as often as white applicants with similar incomes. The Los Angeles area is home to nearly 20% of the banks nationwide that have received a rating of "substantially noncompliant" under the Community Reinvestment Act, the lowest possible score, according to Miami-based bank consultant Kenneth H. Thomas. "Our cities have been cut off in access to credit and capital and in the entitlement programs that are the ladders to opportunity," says the Reverend Charles R. Stith, a community activist in Boston.

VICIOUS CYCLE. Refining and other neglectful policies help propel a vicious cycle of deterioration in the cities. As high unemployent, broken families, drugs, AIDS, and crime wreak havoc in the inner cities, lenders, insurers, and even retailers shun those areas. Squeezed by shrinking local eonomies, cities keep raising taxes and cutting back on crime prevention, sanitation, and the school systems. Larger business start to give up on the city.

The result: Middle-class families, including black families, throw in the towel. Scared of crime, bothered by urban decay, and worried about their children's educations, middle-class families have been fleeing to the suburbs in an exodus that began in the 1970s and continued in the 1980s. The flight of the black middle class is especially worrisome because it weakens the community, church, and educational infrastructure of those blacks remaining in the inner cities, and robs many poor young blacks of role models. "We have poor balcks getting poorer, and middle- and upper-income blacks earning more and moving further away from the ghetto," says Marvin Dunn, professor of psychology at Florida International University in Miami.

Suburbanization also sharpens income differences. City dwellers today exist at the opposite end of the income scale from their suburban neighbors. In 1980, per capita incomes in central cities were about 90% of suburban per capita incomes. By 1987, per capita incomes of center city residents were only 59% of their suburban neighbors, according to the National League of Cities.

`GETTING BRIGHTER.' The future of the cities and of the urban poor need not be so bleak. There are sound economic reasons for businesses to remain committed to the cities, thus improving economic conditions there. Commercial office space in the downtown business districts of major cities is too substantial an investment for companies to simply abandon. Cities are still vital centers of commerce for finance, retailing, and other service-sector activities.

Indeed, the powerful economics of self-interest seems to be having an impact on Corporate America. Many companies are working to improve inner-city schools, for example, well aware that an uneducated labor pool can translate into lost productivity and less consumer spending. In Dallas, community activist Roy H. Williams says large corporations have to realize "that if they allow Dallas to go under simply because of insensitivity to racial strife, then they can't prosper." Adds Donald B. Marron, chief executive of the PaineWebber Group: "I don't see how we can continue to be a successful, civilized, healthy growing society if a whole segment of our population is separate from success."

And many community groups, church leaders, and local entrepreneurs are fighting back. Take Pittsburgh's Homewood-Brushton section. A decade ago, it was just another ugly example of urban blight. In the 1950s and 1960s, white flight to the suburbs cut the area's population in half, to 15,000. Many prosperous blacks abandoned the area after civil disturbances in the late 1960s, dropping the population to 12,500. The four-block commercial district was boarded up except for a bakery, bank, and music store.

But a turnaround in Homewood got under way in 1984 when Mulugetta Birru, an Ethiopian banker, started rehabilitating apartment units through a local nonprofit agency. The new housing brought dollars and new traffic to the area. Today, Homewood has 60 small businesses, including a year-round farmer's market.

Similiar stories can be found around the country. In Detroit, there's Focus:HOPE, a not-for-profit operation under the leadership of Father William T. Cunningham, a priest. Among its various programs, it runs the Machinist Training Institute/CAD, which trains inner-city dwellers in math, computer skills, blueprint-reading, and machine-tool operation. The organization's annual budget of about $50 million comes from foundation grants, state and Federal grants, and money earned by the sale of industrial parts. In Atlanta, former President Jimmy Carter is working to improve that city's slums. His Atlanta Project has collected corporate pledges worth $5 million cash and $8 million more inpersonnel, equipment, and consulting services.

Even in South Central L.A., Jamie Wilkens is staying. He owns a mom-and-pop grocery that survived the riots, though the next block over was burned down. Says Wilkens: "I've been here all my life. I can't imagine going anywhere else." In the face of the forces buffeting the inner cities, that's a bold stand, a statement that all Americans should heed. Globalization is ravaging the nation's most vulnerable citizens, and for too many years now, suburbanization has made it easier to ignore their plight.

But the events in Los Angeles have thrown a spotlight on the inner cities. The urban poor, black and white alike, need a sustained public and private investment so that they, too, can become part of the American dream. And if we fail to act, we will all be the poorer. Morally and economically.

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